Yesterday the Hong Kong Monetary Authority (HKMA) unveiled a “Supervisory Incubator for Distributed Ledger Technology”, with tokenized deposits as a major focus. The regulator says it wants to help banks to maximize the potential of DLT by minimizing the risks.
It provides a platform enabling banks to reaffirm their risk management controls prior to launching a DLT system, with a dedicated HKMA team on hand for supervisory feedback. Banks can optionally conduct live trials. Additionally, the platform aims to promote best practices.
“As the banking industry continues to evolve, it is essential that we provide a supportive environment for innovation to thrive,” said Mr Arthur Yuen, Deputy CEO of the HKMA. “The Supervisory Incubator for DLT is a key component of our strategy to foster the development of DLT-based banking solutions that are safe, efficient, and beneficial to the industry and the wider community.”
The incubator is in addition to multiple DLT-related sandboxes and initiatives that the HKMA is already involved in. Last March it unveiled a stablecoin sandbox, and in August launched a Project Ensemble sandbox to support its wholesale CBDC (wCBDC) initiative, which targets tokenization and tokenized deposits. A few of the banks previously shared their planned activities within the sandbox. Apart from Project Ensemble, the HKMA also expanded its work on retail CBDC to encompass tokenized deposits through e-HKD+.
In our view, the DLT risks include the potential to make the wrong design choices. People often focus on what others are doing, which is useful but can result in tunnel vision and different institutions making the same mistakes. Our report on tokenized deposits addresses both angles – a review of more than 70 projects as well as potential areas being overlooked, particularly in the high level architecture.
